Granting shareholders the power to veto bosses' lavish salaries is fraught
with legal and practical problems and does little to change boardroom
behaviour, business leaders have said.

Hitting back at proposals from Prime Minister David Cameron, the Institute of Directors said allowing shareholders to reject a wage or bonus would create a litigious minefield that could also damage a company's ability to attract top-notch directors.

"It wouldn't be practical or a good idea after the remuneration committee had set pay, not only from a legal point of view but recruitment, too," a spokesman said.

The CBI said a binding shareholder vote on remuneration did nothing to tackle the heart of the excessive pay problem. Director-general John Cridland said: "Government concern on this issue is understandable, but prevention has to be the answer. Binding shareholder votes would be shutting the stable door after the horse has bolted as shareholders would only be voting after the problem has happened."

Mr Cameron told The Telegraph he was keen to end the culture of executives "patting each other's backs, and handing out each other's pay rises". Among proposals to crack down on out-of-control packages, Mr Cameron said he would "empower" shareholders by giving them a binding "vote on top pay packages" and on payment for failure.

Tom Flanagan, employment partner at law firm Irwin Mitchell, said companies could add clauses to future contracts stating pay was subject to shareholder approval. However, such safeguarding would not prevent litigation as reasons for rejecting pay would undoubtedly be disputed in court, he said. "The taxpayer-backed banks would spend taxpayer money defending why they had rejected pay, which undermines the point of this reform," he said.

Vince Cable, the Business Secretary, is understood to be devising plans to make bosses publish a single figure for total pay, including salary, long-term share plans, pensions and other perks, as well as disclose the difference between chief executive pay and that of an average worker.

The measures, which could also force disclosure on the proportion of company profits paid to directors, could be proposed within the Queen's Speech in the spring.

But Carol Dempsey, partner at PricewaterhouseCoopers, warned voting on pay levels was meaningless since companies generally held back sensitive information over why they paid certain amounts. "The vote would take place without people knowing what the company was trying to achieve so it wouldn't be in shareholders' best interests."

A binding vote could also "distract from running the everyday business", she said, as a vote against would require the board to produce a plan B, which could get rejected again in a never-ending circle.

"This is a knee-jerk reaction to something that is an emotive issue," she said.

Shareholder group the ABI wants to see companies disclose withheld votes for greater transparency. It is understood to be against a binding vote on the entire remuneration report, however, as there are too many variables to consider.

Meanwhile, the Financial Times reported on Sunday night that the head of Royal Bank of Scotland’s embattled investment bank is in line to receive a special bonus this year of more than £4m.

John Hourican, chief executive of RBS’s global banking and markets division, was awarded almost 29m shares and options in 2009, as part of a long-term initiative to restructure the group following its disastrous tie-up with Dutch lender ABN Amro.

The awards will vest in April, and at Friday’s closing price of 20.5p, Mr Hourican’s share award would be worth £4.4m if he has met all the prescribed targets.